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Lawyer ads, referral fees under fire in Ontario law society report

Ontario’s legal regulator is proposing significant changes to the fees lawyers take when they refer clients and to the way legal services are marketed to the public.

A Law Society of Upper Canada committee released a report Tuesday recommending referral fees — money paid when one lawyer refers a client to another lawyer — either be banned outright or capped.

Malcolm Mercer, the chair of the law society's Advertising & Fee Arrangements Issues Working Group, which has proposed significant changes to the way lawyers and paralegals market their services and charge referral fees. (Todd Korol / for the Toronto Star)

The report, by the Advertising & Fee Arrangements Issues Working Group, also proposes curbing or banning the use of paid-for, often misleading awards; and prohibiting practitioners from marketing services they don’t intend to provide — a practice critics say would put an end to so called brokerage houses that draw in clients with flashy ads only to refer them out for a fee to lawyers at different firms, often without the client’s consent.

“(Lawyers) should not be advertising a service that they are not intending to perform,” the report states.

Malcolm Mercer, the chair of the law society working group, said “the principal concern about referral fees was about the effect on injured people.”

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“There appears to be a substantial lack of transparency when injured people are looking for a lawyer. It is not clear to them that referral fees are earned in that process.” These referral fees, paid by the lawyer who will ultimately handle the case, can range as high as 30 per cent of the overall fee according to the committee and its members have concerns that those payments limit the lawyer’s ability to properly represent the client.

The working group’s proposals, which will be voted on during the law society’s convocation meeting Thursday, come on the heels of a Star investigation into the referral fee and marketing practices of Ontario’s personal injury lawyers.

In one story, the Star looked at law firm Diamond & DiamondDiamond & Diamond and found that for many years it has been attracting thousands of would-be clients and then referring cases out to other lawyers in return for sometimes hefty referral fees. Along the way the firm’s marketing, which has included women in tight T-shirts and ads above the urinals at the Air Canada Centre, has raised the ire of the law society, clients, and some lawyers. Diamond & Diamond maintains it has a growing number of lawyers working cases at the firm, but would not say how many cases are referred out.

In another story, the Star showed that the world of personal injury advertising is like a “wild west” with many lawyers apparently breaking the rules designed to prevent false and misleading marketing. The Star found that more than two dozen Ontario personal injury law firms described themselves as the “best” or “#1.”

The Star also found that for years, lawyers working on contingency for accident victims — “you don’t pay unless we win” — have been “double dipping,” taking more money from their clients than the law allows. As a result, the Star story said, many Ontario residents have been overcharged thousands of dollars and likely do not know it.

The law society report on advertising and fee arrangements does not make recommendations on contingency fee agreements and states that the working group continues to explore that issue.

When it comes to referral fees, the working group’s view is that there are “significant issues” with the current operation and “apparent non compliance” with existing rules. Currently, the law society allows referral fees if the client consents, the fee is reasonable and does not increase the client’s bill.

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In its December investigation, the Star heard from some clients who called Diamond & Diamond after an accident and alleged the firm passed their personal details to other firms without permission, something that, if it happened, would be a breach of professional rules. Diamond & Diamond has denied these allegations and through its lawyer stated that the firm abides by all law society rules.

The law society report, which does not name any lawyers, says the working group’s information suggests that “clients are not sufficiently aware of the fact that they are being referred to another lawyer, that there is a referral fee, or the quantum of the fee” and the committee recommends either banning the fees altogether or regulating the practice, possibly capping referral fees at 10 per cent of the total fee.

One concern about banning fees altogether would be that it would lead to undisclosed “cash” referral payments, the report says.

Referral fees, which can today range from 15 to 30 per cent of what the lawyers charge when the case settles, can vary depending on the seriousness of the client’s injury, the report says.

But the severity of injury doesn’t necessarily mean more work for the lawyer and in many cases, the report says, the amount received by the referring lawyer could be “seriously disproportionate” to the value provided to the client. The Working Group favours a fee cap in the range of 5 to 10 per cent of the net legal fee.

The report states that Working Group has “significant concerns” that the lack of transparency” about referral fees has been fuelled by misleading advertising and recommends modifications and additions to the Rules of Professional Conduct that govern how lawyers behave.

The law society's proposals come on the heels of a Toronto Star investigation into the referral fee and marketing practices of Ontario’s personal injury lawyers. (Randy Risling)

One lawyer the Star researched made impressive sounding claims on his website, informing visitors he had been voted “#1 in Client Satisfaction” and “#1 Personal Injury Law Firm” by a group called “Elite Lawyers Ontario.”

The Star discovered there was no registered business with that name. There was, however, a website called elitelawyersontario.com. that was registered in 2015 by the lawyer who made the claims.

As part of its probe into the marketing tactics of Ontario’s personal injury lawyers, the Star found that some of Preszler injury lawyers’ advertising may violate the law society’s rules because Preszler uses actor John Fraser as a pitchman for the firm in bus ads and in videos without disclosing that Fraser is not a lawyer.

The Star also found a website with the address www.bestpersonalinjurylawyer.com that lead straight to the Preszler website. The law society cautions lawyers against stating they are “qualitatively superior” to other lawyers.

Law society rules don’t deal with the issue of actors being used in ads, but they do state that advertising for lawyers’ services must be “demonstrably true, accurate and verifiable” and cannot be “misleading, confusing or deceptive.” Marketing must also be “in the best interests of the public” and “consistent with a high standard of professionalism.”

When asked about use of an actor in its ads, Jeff Preszler, a lawyer at the firm, told the Star that many companies use spokespeople. “We’re no different,” he said. “We think that (Fraser) helps our firm deliver a very positive message about access to justice to the public, and, most importantly, we don’t represent him to be a lawyer or Robert Preszler. We never have. We never will.”

Preszler said that his firm has never been the “subject of a complaint or reprimand by the Law Society of Upper Canada with respect to the usage of John Fraser.”

Of the website, www.bestpersonalinjurylawyer.com , Preszler said that his firm does not own the web address and that it was a “test site owned by our search-engine optimization provider based on frequently searched terms on Google.”

The link stopped working after the Star started asking questions about it.

The Star has found no evidence that Preszler injury lawyers have used misleading awards or marketing for the purpose of referral fees.

Rather than scrapping the existing rules and starting over, the committee recommends giving clearer guidance to lawyers on how to advertise in ways that don’t mislead, confuse or deceive the public.

The committee’s recommendations include modifications and additions to the Rules of Professional conduct, which govern lawyer conduct.

The modifications include providing examples of marketing that contravenes the rules, for instance, failing to disclose “a practice that the lawyer has of referring clients for a fee,” failing to disclose what type of professional — lawyer or paralegal — will provide the services, and “bait and switch” techniques where clients are drawn by prices or services that differ from those provided.

Particular care should be taken when it comes to using awards in marketing, the report says. Awards that contravene the rules are ones that do not genuinely reflect the performance and quality of services provided, are not part of a “reasonable evaluative process,” are “conferred in part as a result of payment of a fee” and contain superlatives, such as “best” and #1. One solution, the report suggests, is to have lawyers inform the public when an award the lawyer received has been paid for.

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